Kinsale Capital Group, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the supplied filing text does not provide standalone fourth-quarter results. Kinsale is a U.S. excess and surplus lines property-and-casualty insurer focused on hard-to-place commercial and personal risks.
Financial performance and position
| Metric | FY 2022 / year-end | Comparison |
|---|---|---|
| Gross written premiums | $1.102 billion | Up 44.2% from $764.4 million |
| Net earned premiums | $794.1 million | Up 36.2% from $582.9 million |
| Net income | $159.1 million; diluted EPS $6.88 | Net income up 4.2%; diluted EPS was $6.62 |
| Net operating earnings (non-GAAP) | $180.4 million | Up 36.2% from $132.4 million |
| Underwriting income (non-GAAP) | $175.5 million | Up 31.4% from $133.6 million |
| Loss / expense / combined ratios | 57.7% / 20.2% / 77.9% | 2021: 55.7% / 21.4% / 77.1% |
| Net investment income | $51.3 million | Up 65.2% from $31.0 million |
| Cash from operating activities | $557.8 million | 2021: $407.0 million |
| Cash and invested assets | $2.187 billion | 2021: $1.686 billion |
| Stockholders’ equity | $745.4 million | 2021: $699.3 million |
| Debt, net of issuance costs | $195.7 million | 2021: $42.7 million |
Return on equity was 22.0%, down from 23.9%; operating return on equity (non-GAAP) was 25.0%, up from 20.8%. Cash and cash equivalents were $156.3 million at year-end. Investing activities used $708.6 million, including the $76.6 million real estate acquisition; financing activities provided $186.0 million. Total comprehensive income was $6.1 million, reflecting a $153.0 million after-tax other comprehensive loss, primarily from unrealized losses on available-for-sale investments.
Material changes and drivers
- Premium growth reflected higher broker submissions, continued rate increases and favorable E&S market conditions. Commercial property premiums rose 154.8%; commercial casualty and other lines also grew broadly.
- Underwriting income increased, but the combined ratio edged up to 77.9% as catastrophe losses and lower favorable prior-year reserve development outweighed improved expense efficiency.
- FY 2022 included $26.6 million of net catastrophe losses, primarily from Hurricane Ian, versus $8.6 million in 2021, primarily from Hurricane Ida and Texas winter storms.
- Prior accident years developed favorably by $35.9 million, mainly from the 2020 and 2021 accident years; adverse development, largely from 2016 and 2018, partly offset that benefit.
- Net investment income rose with a larger investment portfolio and higher interest rates. Conversely, equity securities recorded a $27.7 million fair-value decline, compared with a $22.8 million gain in 2021.
- Unrealized losses on available-for-sale investments drove accumulated other comprehensive income (loss) from positive $18.1 million to negative $134.9 million. The company reported that most fixed-income unrealized losses reflected interest-rate or market movements, rather than issuer-specific credit concerns.
Liquidity, capital and notable transactions
- The company acquired adjacent real estate for $76.6 million in December 2022, primarily funded by a $73.0 million draw on its revolving facility. It entered into two operating leases as lessor, with five- and 12-year terms.
- In July 2022, it issued $125 million of 5.15% senior notes due 2034 and amended its revolving credit facility, increasing the commitment to $100 million and extending maturity to 2027. Year-end revolving borrowings were $72.5 million net of issuance costs; the notes were $125 million net of issuance costs. The filing states the company complied with debt covenants at year-end.
- A November 2022 stock offering issued 155,000 shares and generated $47.5 million in net proceeds. FY 2022 dividends were $0.52 per share. The board declared a $0.14-per-share dividend in February 2023, payable in March.
- Management stated that liquidity at the holding company and subsidiaries was sufficient for operating needs and obligations over the next 12 months. Kinsale Insurance paid no dividend to the holding company in 2022; up to $153.3 million could be distributed in 2023 without regulatory approval, subject to regulatory limits and available surplus.
- Insurer statutory capital and surplus was $835.7 million at year-end, and the filing states it substantially exceeded regulatory risk-based capital requirements. Kinsale Insurance retained an “A” (Excellent) A.M. Best financial strength rating.
Outlook, risks and contingencies
- The filing provides no specific numerical earnings, premium-growth or margin guidance. Management described favorable E&S conditions, ongoing growth opportunities and a focus on underwriting profitability, prudent capital management and expense control; these are forward-looking statements, not guarantees.
- Key exposures include reserve-estimation uncertainty, claims inflation and social inflation, catastrophe and climate-related losses, reinsurance availability and counterparty collectability, market-cycle shifts, competition, and dependence on a concentrated broker network. The top three brokers generated 45.3% of gross written premiums; the top five generated 58.5%.
- Net loss reserves were $1.061 billion, of which 87.0% was IBNR. Management’s sensitivity analysis estimates that a 5% change in net IBNR would change reserves by $46.1 million and net income by $36.5 million. KPMG identified reserves for unpaid losses and loss adjustment expenses as a critical audit matter, citing uncertainty and reliance on company and industry data.
- Reinsurance recoverables on paid and unpaid losses totaled $220.5 million; five reinsurers accounted for 67.3% of that balance. The company reported a $0.5 million allowance for reinsurance credit losses and said all reinsurance counterparties were rated “A-” or better.
- Interest-rate movements can affect investment values and book value; a 100-basis-point increase was estimated to reduce the fair value of fixed maturities and non-redeemable preferred stock by $64.2 million. The portfolio’s average duration was 3.5 years.
- Legal proceedings arise in the ordinary course; the company reported none reasonably expected to have a material adverse effect. It also stated COVID-19 did not materially affect FY 2022 results, financial position or cash flows.
Most important facts for investors to verify
- Whether premium growth and pricing continue to support underwriting profitability as market conditions and competition change.
- Reserve adequacy and subsequent development, particularly the large IBNR component, long-tail casualty exposure and actuarial assumptions.
- Catastrophe exposure, Hurricane Ian claims development, reinsurance protection terms, and concentration and collectability of reinsurance recoverables.
- Investment portfolio valuation, realized versus unrealized losses, credit quality, interest-rate sensitivity and the effect of accumulated other comprehensive losses on equity.
- Debt service, floating-rate facility exposure, covenant headroom, and the funding and returns associated with the real estate investment.
- Broker concentration, regulatory constraints on subsidiary dividends, and the distinction between GAAP net income and management’s non-GAAP operating measures.